Enabling Private Ordering - the University of Minnesota Law School

2009] UMBRELLA CLAUSES 7
act of the host State. 7 Essentially, this approach views umbrella
clauses as a declaratory codification of customary international
law that clarifies that rights of an investor under an investor-
State contract can form the object of an expropriation and
accordingly require compensation in case they are taken. 8 Most
importantly, this position excludes breaches of a purely
commercial nature and reads the distinction between contract
claims and treaty claims into the interpretation of the umbrella
clause. This excludes “simple” or commercial breaches of
investor-State contracts from its scope of application.
However, not only the function of umbrella clauses has
divided arbitral tribunals. Tribunals have also developed
divergent views on the scope of protection that umbrella clauses
offer, i.e. the question of what kind of host State promises they
cover. Some consider umbrella clauses to be limited to the
protection of investor-State contracts, while others include
specific host State promises in a broader sense. 9 Furthermore,
contention exists regarding the effect of umbrella clauses on
contractual relations between foreign investors and host States.
This concerns the question of how umbrella clauses affect the
interplay between the international treaty law that governs the
relations between host States and investors’ home States and
7. See Sempra Energy Int’l v. Argentine Republic, ICSID (W. Bank) Case No.
ARB/02/16, Award, paras. 305–14 (Sept. 28, 2007); Pan American Energy LLC, and
BP Argentina Exploration Company v. Argentine Republic, ICSID (W. Bank) Case
No. ARB/03/13, and BP America Production Company, Pan American Sur SRL, Pan
American Fueguina, SRL and Pan American Continental SRL v. Argentine
Republic, ICSID (W. Bank) Case No. ARB/04/8 (consolidated claims), Decision on
Preliminary Objections, paras. 100–16 (July 27, 2006); El Paso Energy Int’l Co. v.
Argentine Republic, ICSID (W. Bank) Case No. ARB/03/15, Decision on Jurisdiction,
paras. 71–88 (Apr. 27, 2006); CMS Gas Transmission Company v. Argentine
Republic, ICSID (W. Bank) Case No. ARB/01/8, Award, paras. 296–303 (May 12,
2005); see also Enron Corporation and Ponderosa Assets L.P. v. Argentine Republic,
ICSID (W. Bank) Case No. ARB/01/3, Award, paras. 273–77 (May 22, 2007) (holding
that the respondent assumed obligations under the umbrella clause by passing
legislation, but not explicitly ruling on what, if any, contractual obligations are
covered by the umbrella clause).
8. Cf. Thomas W. Wälde, Contract Claims under the Energy Charter’s
Umbrella Clause: Original Intentions versus Emerging Jurisprudence, in
INVESTMENT ARBITRATION AND THE ENERGY CHARTER TREATY 201, 217 (Claude
Ribeiro ed., 2006) (“The umbrella clause was not seen as something radically new,
but rather as a clarification of the prevalent theory . . . that international law, be it
in its customary or treaty-based form, did not allow governments to rely on their
specific sovereign powers to undercut long-term contractual arrangements set up to
regulate a state-foreign direct investor relationship.”); see also Wälde, “Umbrella
Clause” in Investment Arbitration, supra note 4, passim.
9. See infra Part V.